Government’s solutions synchronous and comprehensive: expert

Tuesday, April 8, 2008
Truong Dinh Tuyen, former Minister of Trade, now the Member of the National Advisory Council for Finance and Monetary Policies, talks about inflation and the measures to fight inflation.

What do you think about the current situation? Do you think that inflation is really as worrying as experts say?

The inflation now is not as high as the galloping inflation seen in late 1980s of the last century. At that time, the inflation rate was over 700%. International institutions all say that Vietnam has a firm foundation for high growth in the medium and long term. However, the inflation rate of 12.63% in 2007 was really worryingly high and we must reduce the rate in 2008.

The high inflation in Vietnam has been caused by the combination of the monetary policies (the high total payment instruments and high credit), push cost (the domestic prices have been pushed up due to the higher prices in the world. Vietnam’s export turnover was equal to 160% of GDP, while import turnover 90% of GDP), and demand push (higher domestic consumption and investment demand and higher demand in the world, which both lead to higher export price and higher domestic prices).

Some experts said that the world’s price increases have impacts on all countries in the world, but the inflation rates in other countries are not as high as in Vietnam. In fact, the prices are skyrocketing in all those countries.

The Government has put forward a lot of measures, determined to restrain inflation. Do you think that the ‘remedies’ are suitable for the national economy?

The measures to fight inflation mentioned in the Prime Minister’s article prove to be synchronous and comprehensive. However, the success of the measures depends on the implementation of the measures. For example, we know that it is necessary to tighten the monetary policies, but how tight should the monetary policies be?

We need to tighten the monetary policies, but we must ensure the liquidity and create favourable conditions for export and production.

The State Bank applied strong measures to tighten the monetary policies, but the measures badly affected the liquidity. And the State Bank had to spend money to improve the liquidity. Luckily, the problem was settled. I think this was the reason why the Prime Minister, in his article, emphasized that we need to tighten monetary policies, but ensure the liquidity.

I think we also have to think carefully about cutting the investments by state owned enterprises and the public investments which account for 45% of the total society’s investments. How much should they cut investments? There has been no exact figure, but I think the Government needs to fix the investment ratios.

What is your comment about the suggested solutions that the Government should cut off 20% of ineffective state-funded investment projects?

The experts might have their arguments while making the suggestions. However, I cannot comment about the ratio of 20% because I have not heard their arguments.

I agree with Dr Nguyen Dinh Cung (head of the Macroeconomic Management Division under the Central Institute for Economic Management) that the Government should decentralize in slashing investments. Local authorities are the bodies which grant investment licenses and they know which are ineffective ones and need to be cut.

What would you say about the current stock market?

I don’t think that the stock market is the thermometer of the economy, because our market is quite small with few listed companies and low value in comparison with GDP. I don’t think that it is necessary to use administrative measures to interfere with the market. I have to say that I personally think that it is necessary to control the portfolio investments by foreign investors and I still have doubts about the policy that allows foreign investors to pay in dollars for share transactions.(DTCK)